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Dow Jumps as Powell Says Fed Will Be 'Patient' While Economy Evolves

Last Updated Jan 4, 2019 at 9:18 am ET

Fed Chairman Jerome Powell says the Fed is prepared to be patient given tension between signals from financial markets and the real economy, sending markets higher. Earlier, the jobs report showed U.S. employers added jobs in December at the fastest pace since February and wages surged for their best annual gain since 2008.

Updates

Friday's Report Adds to Challenge for the Fed

Wage Growth Could Spook Investors

Stock Futures Steady

Rate Expectations Continue Ticking Higher

For Many Groups, Unemployment Is Higher Than in 2000

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Friday's Report Adds to Challenge for the Fed

Today's figures will only add to the uncertain picture facing many investors and economists, analysts say. They show the labor market remains robust, yet turbulent financial markets, trade tensions and data pointing to slumping growth in the U.S. and abroad continue to stoke worries about a slowdown.

Fed Chairman Jerome Powell is set to speak on a panel in about an hour at the American Economic Association meeting in Atlanta with his predecessors Janet Yellen and Ben Bernanke, so it will be interesting to see what comments emerge from the meeting this weekend.

Other central-bank officials are also slated to speak at various events in Atlanta in the next few days.

Amrith Ramkumar

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Americans in Their Prime Working Years Are Getting Back to Work

The labor-force participation rate, that is, the share of the population that's working or looking for work, has been little changed in recent years. Labor-force participation was higher than now during every single year from 1978 to 2012.

But among workers ages 25 to 54, when education and retirement keep fewer people out of the labor force, participation rates are much higher. These rates are now back to their highest readings since 2008.

Joshua Zumbrun

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Wage Growth Could Spook Investors

While Friday's jobs report signaled the U.S. economy is continuing to grow on a steady footing, a big surge in wages could be a concerning sign to investors that companies will face greater margin pressure in the months ahead.

Wages last month jumped 3.2% from December, the Labor Department said, the best full-year gain since 2008.

The higher compensation costs could be problematic for companies, as many are also coping with rising commodity and material costs, including from trade tariffs, a strong dollar and weakening economic growth in regions like Europe and Asia, said Evan Brown, head of macro asset allocation strategy at UBS Asset Management.

"To the extent people are concerned about margin pressures, that will remain a lingering concern," said Brown.

Michael Wursthorn

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Stock Futures Steady

U.S. stock futures added slight gains after employers created more jobs than expected last month, signaling the economy is still on a strong footing. Dow and S&P 500 futures both rose 1.4%, after rising more than 1% ahead of the report.

Jessica Menton

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Rate Expectations Continue Ticking Higher

Not only do fewer investors expect a rate cut this year, but some are starting to shift to expectations the the Fed will now boost rates once by the end of the year, per CME Group data.

Granted, the figure is only 1.1%, but combined with the proportion of investors who expect a rate decrease already falling to about 36% from 50% a day ago, the data show how quickly analysts are having to adjust their projections on mixed economic reports.

Amrith Ramkumar

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For Many Groups, Unemployment Is Higher Than in 2000

Unemployment has trended down for workers of different race and gender groups. Slight increases in some unemployment rates last month, however, meant that December 2000 had lower unemployment rates for most groups, with the notable exception of black men.

Joshua Zumbrun

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The Unemployment Rate's Been Rising for Less-Educated Workers

After shrinking for years, the educational divide has been widening in recent months. Since July, unemployment has climbed to 5.8% from 5.1% for those without a high-school diploma. For those with a college degree, it has slightly declined to 2.1% from 2.2%.

Joshua Zumbrun

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Risk Assets Continue Climbing in Tandem

With U.S. stocks set to open markedly higher after Thursday's slump, commodities from oil to copper are also rallying on the jobs numbers and hopes of trade progress between the U.S. and China.

Fears about a quicker-than-expected slowdown in global growth and lower material consumption have pounded both commodities in recent weeks, so they are also worth monitoring to gauge risk appetite.

Risky investments have also been increasingly moving in tandem, potentially exacerbating the market's moves in either direction, investors say.

Copper is up about 1.5%, while U.S. crude has risen 2.1% as its recent rebound continues. Those commodities are also a key input for many companies, so it's worth watching how the price slide affects inflation expectations moving forward.

Amrith Ramkumar

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Stocks Aren't in the Clear Yet

Don't expect a strong jobs report to calm the stock market.

With investors on edge about the direction of interest rates, good economic data has increasingly been interpreted as justification for the Fed to continue on its rate-increase campaign. That in turn is a potential negative for stocks, since investors often become less willing to take on risk when they can get higher yields elsewhere.

"Yields are rising as the probability of the Fed raising rates is back on the table. Stocks may see good news as bad news though so expect another volatile day in stocks," said Bryce Doty, senior portfolio manager at Sit Fixed Income Advisors, in an email.

Akane Otani

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Investors Receive Much-Needed Positive Report

Investors got a much-needed dose of good news about the U.S. economy Friday after the Labor Department said hiring and wages surged last month.

"It's a very strong report across the board," said Evan Brown, head of macro asset allocation strategy at UBS Asset Management. "To the extent the market is concerned about a very sharp slowdown in U.S. growth, it should ease some of the concerns," he added.

Still, it's worth keeping an eye on fears about higher interest rates now, as anxiety about tighter financial conditions could still lead to more market volatility in the days and weeks ahead.

Michael Wursthorn

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Reaction: Friday's Numbers 'Make a Mockery' of Recession Fears

Investors have increasingly been mentioning the r-word recently, but Paul Ashworth, chief U.S. economist at Capital Economics, says in a note that Friday's report should ease those short-term worries.

"The far bigger-than-expected 312,000 jump in non-farm payrolls in December would seem to make a mockery of market fears of an impending recession.

Admittedly, employment is a coincident indicator, whereas the ISM manufacturing index, which we learned yesterday fell sharply in December, is a leading indicator. But, even allowing for that distinction, this employment report suggests the US economy still has considerable forward momentum," he writes.

Amrith Ramkumar

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Higher Unemployment Rate Still Lowest Year-End Reading Since 2000

Different measures of the unemployment rate rose slightly at the end of the year, but remain quite low. The 3.9% unemployment rate is the lowest year-end reading since December 2000.

Joshua Zumbrun

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Emerging Market Currencies Rise After U.S. Jobs Report

A favorable U.S. jobs report stoked investor appetite for risk, pushing some to sell the dollar and buy emerging market currencies.

The dollar was recently down 1% against the Turkish lira and lost 1.1% against the Russian ruble, while also losing ground against the South African rand and other emerging market currencies. The U.S. added 312,000 jobs last month, above the 176,000 expected, quelling some concerns that the trade conflict with China was bruising the U.S. economy.

Ira Iosebashvili

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Strongest Year-End Wage Growth in More Than a Decade

Wages rose 3.2%, both hourly and weekly. That's not quite as strong as some of the year-over-year readings earlier this year, but it's the best number to close the year in over a decade.

Joshua Zumbrun

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Here's Why the Unemployment Rate Ticked Higher

Helping to explain the uptick in joblessness, the labor force participation rate rose to 63.1%, matching its highest level since 2014, from 62.9% in November.

Participation has been low by historical standards in recent years as the U.S. population ages, but economists say rising wages and good job prospects may be pulling workers back into the labor force.

Jessica Menton

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Why the Numbers Bolster the Case for Higher Rates

The yield on the two-year Treasury note, which often moves in line with traders' expectations for monetary policy, was recently at 2.457%, compared with around 2.423% just before the jobs report. And federal-funds futures are pricing in a 36% chance of the Federal Reserve lowering interest rates this year, below 43% earlier Friday, according to CME Group.

Two reasons why that is: nonfarm payrolls jumped far more than economists expected in December. And more importantly, average hourly earnings notched their biggest full-year gain since 2008.

With the labor market showing continued signs of strength and inflation ticking higher, the Fed may have a bit more of a difficult time pausing its rate-increase campaign, analysts said.

"The numbers are reflective of the very strong economy that we had in 2018. Unfortunately, this will probably prevent the Fed from being too clear about pausing at this moment," said John Vail, chief global strategist at Nikko Asset Management, adding that "this may not be taken well by risk markets."

Akane Otani

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Investors More Confident Fed Will at Least Keep Rates Steady

Investors are already adjusting their interest-rate expectations after Friday's stronger-than-expected hiring and wage-growth figures. About 65% of them expect the Fed to keep rates steady this year, compared to roughly 50% late Thursday, meaning few now expect a rate cut in 2019, CME Group data show.

Expect these figures to continue bouncing around as investors parse more mixed data in the coming weeks. Earnings season is also set to kick off the week of Jan. 14 and could impact growth expectations.

Gold Steady After Report

Gold was little changed following the jobs data. It was last down 0.4% to $1289.40 per ounce, pulling back slightly on Thursday's gains amid a stronger dollar.

Political and economic headlines recently have helped support the rally in metals prices. Investors tend to buy gold during times of economic uncertainty, believing that the metal will hold its value better than other risky assets when markets are volatile.

Jessica Menton

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Steady Hiring Across Sectors

Almost every private-sector industry boosted hiring last month, with health care, food services and construction among the bright spots.

Health-care employers added 50,000 jobs last month, bringing their full-year total to 346,000, while employment in food services and drinking places and construction was higher by about 40,000.

Manufacturers added 32,000 jobs last month, continuing a steady trend that could ease some investor fears about a quicker-than-expected slowdown in that area as the trade fight continues.